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Head Off All the Risks in an Acquisition

Head Off All the Risks in an Acquisition

Tom Ewers and Munzoor Shaikh

Tom Ewers and Munzoor Shaikh of West Monroe Partners discuss the ins and outs of pre-close integration planning for health care payer mergers and acquisitions.

The M&A process should begin by clearly defining both the acquisition strategy, type of acquisition (Leverage Business Model (LBM) or Re-invent Business Model (RBM)) and the overall approach to integrating the two companies. Acquirers should then hone in on which consolidation and collaboration opportunities need to be pursued to generate the expected benefits. Then, they should define a clear investment thesis and operating model to help formulate the integration approach, thus completing their pre-close homework.

Next, payers should transition to the operational and IT diligence steps within the integration lifecycle. These efforts begin by building a diligence and integration team with expertise in a number of different disciplines that cover the target organization’s key capabilities and represent stakeholders from the potential acquirer.

As the strategy and pre-close phases come to an end, initiating pre-close integration planning is the next step to reach a successful transaction outcome. This is especially important for payers because not only do they tend to have specialized claims processing, but also there are various new requirements and forces at play today given the advent of the Health Insurance Exchanges (HIX). Plan early to provide clear “Day-1” direction and to set stakeholder expectations.

Pre-close communication planning makes it easy to outline the timing of internal communications to business operations units and external communications to provider networks, customers, and third party vendors. At a minimum, establishing the integration management/governance structure and communication process for pushing information through the organization should be a priority.

Be sure to formalize the integration management office (IMO) and assign responsibilities such as IMO director, integration steering committee members, and workstream leaders — that is the leaders of different groups of divisions within a company. Drafting a charter that clarifies the scope, approach, resources, deliverables, synergies, and timeline expectations provides transparency into the integration process.

It is highly recommended to form workstream teams that parallel the synergy expectations for the given acquisition. For example, if an acquisition’s goal is to create provider network renegotiations and employer group recontracting, these should be two different teams. Each team can consist of business leaders, technical members, and representatives from the IT department. Each team will have a specified synergy dollar amount that they are responsible to deliver over a specified amount of time.

The IMO can help bring transparency and accountability to these teams. It is typical for post-close work to start with a lot of enthusiasm only to die out after several months, jeopardizing, delaying or eliminating the expected results from the combined business. By forming teams according to the planned goals, the IMO can create greater accountability and track progress more closely. Once a given synergy is achieved, that particular team can be dismembered.

With proper strategy, discovery, and planning, a successful transition from pre-close to post-close execution becomes the more likely outcome of a complex merger; procrastinating or avoiding these important steps might leave your merger integration program vulnerable to larger risks. Seize the opportunity envisioned in the original investment thesis by completing these important pre-close activities and mobilizing for a successful post-close integration effort that captures all of the expected goals and mitigates the identified risks.

This is the third and final article in a series on health care mergers and acquisitions.  Here are links to the first two:

About the authors

Tom Ewers is a senior director of the management and technology firm West Monroe Partners. He is responsible for expanding presence in key local industries — particularly health care, manufacturing and distribution, and private equity — in the upper Midwest and coordinating services for national and international clients with operations in that region.

Munzoor Shaikh is a senior manager in the company’s health care payer practice. He has more than 14 years of experience as a business transformation consultant.